vrijdag 16 mei 2014

The bailout floodgates are open and the US taxpayer is footing the bill once again - whether through IMF loans or more directly. Today saw Ukraine issue $1 Billion 5-Year Notes at a stunningly low risk of only 28bps above US Treasuries and dramatically cheaper than the cost of capital in the public markets (and from the IMF) which yield over 10%. The reason for the 1) low cost, and 2) actual ability to raise debt... the bond is guaranteed by the US Agency for International Development and "assures full repayment of principal and interest" based on the full faith and credit of the US (Taxpayer). We assume Gazprom will be happy...

*UKRAINE $1B 5Y NOTES LAUNCH AT +28

So why not pile into these bonds? 28 extra basis points for no apparent additional credit risk... some liquidity risk but we are sure your friendly local central bank will enable you to swap them for infinitely rehypothecatable cash with no haircut...

"The $1 billion loan guarantee that (U.S. Agency for International Development) will implement will help the government of Ukraine access capital at reasonable rates and manage the transition to a prosperous democracy," Mark Feierstein, assistant administrator at USAID, said in April.

"The guarantee assures investors of full repayment of principal and interest."

The deal follows similar guarantees provided for bonds issued by Tunisia in 2012 and Jordan last year.

But - there is a catch...

Bank of America Merrill Lynch said Tuesday that Ukraine's bondholders could face losses if separatists in the country's southeastern regions successfully gain independence.

The bank said a breakup of the country could potentially force the International Monetary Fund to tear up Ukraine's current $17 billion aid package and trigger a debt restructuring program that would hit private investors. An IMF spokesperson said the fund is monitoring the situation.